Some people use payday lenders responsibly, getting a small loan to briefly tide them over during a troubled time.

For example, a young man recently got $200 loan to finance a trip to St. Louis for the birthday party of his wife’s grandmother. He had a good income and just needed a one-time loan, said Kevin Bernadt, co-owner of Cash Solutions.

But some people get in trouble, digging a deep hole of debt. Jane, a 55-year-old woman on Social Security disability, borrowed $275 from two payday lenders — to get some services for her disabled daughter, said Lin Quenzer, ombudsman for the Lincoln Mayor Chris Beutler.

Within a few months Jane owed more than $1,000 because of accruing interest and returned check charges. The payday lending company employees were harassing her by phone and in person, Quenzer said Monday during public hearings before the Legislature’s Banking, Commerce and Insurance Committee. 

Senators considered two bills affecting the 140 Nebraska-based payday lenders during the hearings.

One bill (LB293), sponsored by Lincoln Sen. Danielle Nantkes, would effectively end the payday lending business in Nebraska by capping the annual interest rate at 36 percent a year.  Currently the effective interest rate, based on legally allowed fees, is 460 percent .

The other bill (LB460), sponsored by Lincoln Sen. Amanda McGill, would require a state database to help prevent people from getting multiple loans from different lenders, now illegal but not enforceable.

“It is unconscionable that these business are allowed to operate in our state,” said Nantkes, pointing out that 15 states have banned payday lending outright or by an interest rate cap.

Payday lenders provide short-term loans, secured by a check written to a checking account. The loans, up to $500, are generally for several weeks and the lenders charge $15 per $100 loaned.

Legal Aid of Nebraska, which supported Nantkes’ bill, talks to people every day who are unable to repay loans without giving up basic necessities, said Leah Wrobelowski, with Legal Aid of Nebraska.

The delayed deposit industry contributes to poverty by creating a cycle of debt that people cannot escape, she said.

But she didn’t know what the alternatives would be for people with no extra income who find themselves blindsided by a car repair or a medical debt.

“But I don’t think payday lending solves the problem long term,” she said.

Nantkes suggested that banks and credit unions will step up to address short-term financial crises.

Because there are no current alternatives for people who need short-term loans, McGill said her aim was not to shut down the industry, but to help people avoid getting caught in the cycle of debt.

“Right now it is against the law for someone to take out a loan at multiple companies, but we have no way to track that,” she said. The database would flag customers with other loans, she said.

Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.